Polis: student-aid reform axes the middlemen

It wasn't a federal takeover. It already was a federal program.

| Mar 31, 2010

Rep. Jared Polis writes from Washington…

Tea Partiers and health insurance lobbyists were not the only ones who descended “like locusts” on Capitol Hill in recent weeks to kill reform. Much less noticed were opponents of another historic reform taking place while the spotlight was on health care.

An army of bank lobbyists were working hard in a last-ditch effort to kill one of the most important pieces of higher education legislation ever – a major overhaul of federal student loan programs that will finance the single largest investment in federal student aid in U.S. history.

Rep. Jared Polis

Rep. Jared Polis

This landmark measure ended wasteful subsidies to big banks under the Federal Family Education Loan (FFEL) program by requiring that all new federal student loans are made through the existing Direct Loan (DL) program. This reform kills the middleman in federal student loans and ends the gravy train, which worked like this: Banks made federally subsidized loans to students. If those loans defaulted, then the government reimbursed them. In other words, taxpayers subsidized the reimbursements and absorbed all the risk, while banks made money. To add insult to injury, the credit crunch forced the federal government to bail out these lenders and provide the capital to finance the student loan lending. Today, taxpayers fund 88 percent of federal student lending activity. 

No more middlemen

So instead of continuing to pump taxpayer dollars into a broken middleman system when the federal government already provides the same loans through DL more reliably and at a lower cost, this common-sense reform diverts $61 billion over the next decade from banks’ loan guarantee and interest subsidy entitlements to students and their families. This investment will be used to protect and boost Pell Grant scholarships, help students manage and repay their loans, strengthen community colleges and reduce the deficit.

For my district and Colorado this is a huge win. The bill invests $44.5 million in Colorado’s 2nd Congressional District and $372.3 million in Colorado over 10 years to increase the maximum annual Pell Grant scholarship to $5,550 in 2010 and to $5,975 by 2017. It bolsters college access and completion support efforts for Colorado students with $8.3 million over the next 5 years through the College Access Challenge Grant program. It also provides $30 million in Colorado’s Minority-Serving Institutions to provide students with the support they need to stay in school and graduate.

But opponents view this differently, much like those opposing health care reform: Instead of helping students and families by making college more affordable and accessible, they argued that this is another government takeover that will result in massive job losses, add to the federal budget deficit, limit customer choice, and hinder competition. Sound familiar? Well, it seems that they thought the same arguments must apply to this reform just as well as they did for health care. But just like health care, they ultimately failed simply because they do not reflect the facts.

No, not a takeover

Takeover: It’s logically impossible for the federal government to take over a program that is already a federal program, established and subsidized by the federal government. Job losses: Unlike FFEL loans, Direct Loans can only be serviced by workers in the U.S. Deficit: In addition to increasing grant aid and supporting students, this bill will reduce the deficit by at least $10 billion over 10 years. Competition: Both DL and FFEL programs must lend student loans on virtually the same rates, terms and benefits, by law.

As in the health care debate, facts ultimately prevailed over fear mongering. The middleman’s loss was our win.

Jared Polis represents the 2nd Congressional District, including Boulder, in the U.S. Congress.